Pub­li­ca­tions

Ter­mi­nat­ing a lease — what not to do


In Brief

A land­lord com­mu­ni­cat­ing to a ten­ant a ter­mi­na­tion of a lease must be clear. This is evi­dent from the deci­sion in Dee-Tech Pty Ltd v Ned­dam Hold­ings Pty Ltd [2010] NSWCA.


The terms pro­vide for the right

A lease will gen­er­al­ly pro­vide for the cir­cum­stances where a land­lord is enti­tled to exer­cise its con­trac­tu­al right to ter­mi­nate a lease. The rel­e­vant ter­mi­na­tion may be by re-entry or notice of breach to the ten­ant of an essen­tial term.

Except in the case of non pay­ment of rent, the land­lord must com­ply with the pro­vi­sions of sec­tion 129 of the Con­veyanc­ing Act 1919 (NSW) in order for the ter­mi­na­tion to be effective.

Compliance

In order for a notice of ter­mi­na­tion of a lease to be valid, the notice must make a clear demand for pos­ses­sion. This means that the notice to ter­mi­nate a lease must include an unequiv­o­cal act or state­ment that the land­lord is treat­ing the lease as at an end.

Bad example

The Dee-Tech case demon­strates a bad exam­ple of a notice to terminate.

In the Dee-Tech case, the agent for the land­lord served on the ten­ant what was unsuc­cess­ful­ly argued as an effec­tive notice to ter­mi­nate the lease.

The right for the land­lord to ter­mi­nate the lease arose because the ten­ant did not main­tain the rel­e­vant insur­ances under the lease and main­te­nance of insur­ance by the ten­ant was an essen­tial term of the lease. A breach of this term of the lease meant that the land­lord could ter­mi­nate the lease sub­ject to the obser­vance of sec­tion 129.

The notice

The notice head­ed Notice to vacate the premis­es” in the Dee-Tech case includ­ed, amongst oth­er things, that:

You are in breach of your lease and we have been instruct­ed to ter­mi­nate this cur­rent lease… You are request­ed to vacate the premis­es”.

The Court of Appeal held that the notice was not an unequiv­o­cal state­ment to ter­mi­nate the lease because:

  • the head­ing failed to describe that the notice was a ter­mi­na­tion of breach of an essen­tial term;
  • the notice did not state that the lease was terminated;
  • the notice did not state that the lease would be ter­mi­nat­ed at a cer­tain time in the future; and
  • the notice did not con­tain any demand for imme­di­ate pos­ses­sion of the premises.

In essence, the notice did not con­tain any demand at all that the ten­ant yield up pos­ses­sion of the premis­es. It sim­ply con­firmed the request”.

Be cautious

If the inten­tion of a land­lord is to ter­mi­nate a lease, the lease should be ter­mi­nat­ed effec­tive­ly with clear and direct language. 

Alter­na­tive­ly, a ten­ant should not take a notice to ter­mi­nate giv­en by the land­lord on face val­ue and should con­sid­er whether the notice actu­al­ly serves the pur­pose for which it was given.

In the Dee-Tech case, in the end, because the lease was not valid­ly ter­mi­nat­ed unbe­known to the land­lord, in the same and small win­dow of oppor­tu­ni­ty, the ten­ant effec­tive­ly exer­cised its option for a fur­ther term and the rela­tion­ship between the land­lord and the ten­ant continued.